P10.7 (LO 2) Groupwork (Capitalization of Borrowing Costs) Laserwords A.Ş.is a book distributor that had been operating in its original facility since 1985. Theincrease in certification programs and continuing education requirements inseveral professions has contributed to an annual growth rate of 15% for Laserwordssince 2017. Laserwords' original facility became obsolete by early 2022 because ofthe increased sales volume and the fact that Laserwords now carries CDs inaddition to books.On June 1, 2022, Laserwords contracted with Black Construction to have a newbuilding constructed for +4,000,000 on land owned by Laserwords. The paymentsmade by Laserwords to Black Construction are shown in the schedule below.DateAmountJuly 30, 2022t 900,000January 30, 20231,500,000May 30, 20231,600,000Total payments +4,000,000Construction was completed, and the building was ready for occupancy on May 27,2023. Laserwords had no new borrowings directly associated with the new buildingbut had the following debt outstanding at May 31, 2023, the end of its fiscal year.10%, 5-year note payable of t2,000,000, dated April 1, 2019, with interestpayable annually on April 1.12%, 10-year bond issue of t3,000,000 sold at par on June 30, 2015, withinterest payable annually on June 30.The new building qualifies for capitalization of borrowing costs. The effect ofcapitalizing the interest on the new building, compared with the effect of expensingthe interest, is material.Instructionsa. Compute the average carrying amount on Laserwords' new building during thecapitalization period.b. Compute the borrowing cost to be capitalized on Laserwords' new building.

An entity shall capitalize borrowing costs that are directly attributable to the acquisition,…

Answered: a. Compute the average carrying amount…

a. Compute the average carrying amount on Laserwords' new building during the capitalization period. b. Compute the borrowing cost to be capitalized on Laserwords' new building.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Databank holds ¢460million T-Bill but it needs cash to settle an investor whose investment has matured and is expected to be paid ¢400 million. You have been asked to approach Ecobank to sell the T-Bill for ¢415 million on the morning of 19th May, 2008 with agreement to repurchase the bill on the evening of 23rd May, 2008. (a) What is the cedi cost of this transaction to Databank? (b) What is the Repo Rate on this transaction?
(i) Databank holds ¢460million T-Bill but it needs cash to settle an investor whose investment has matured and is expected to be paid ¢400 million. You have been asked to approach Ecobank to sell the T-Bill for ¢415 million on the morning of 19th May, 2008 with agreement to repurchase the bill on the evening of 23rd May, 2008. What is the cedi cost of this transaction to Databank? What is the Repo Rate on this transaction?
Minden Co. has unsecured debt of $1,500,000 that carries interest at 10%. If Minden Co. was able to offer land and buildings with an appraised value of $2 million as security for the debt, the interest rate should * a) decrease because of reduced risk b) decrease because of higher profits c) decrease because of a higher interest cover ratio d) increase because of risk e) none of the above Capacity : a) cannot be changed in the short run b) can be changed in the long run c) is completely under the control of management d) (a) & (b), but not (c) e) (a), (b) & (c)
ABC Corp., a DC, registered in 2010 made available the following financial information for TY2021: Balance Sheet: Asset - Php 500,000 Liability - Php 100,000 Stockholders' Equity - Php 400,000 Income Statement: Gross sales - Php 100,000,000 Cost of sales - Php 60,000,000 Operating Expenses - Php 30,000,000 How much is the excess MCIT which can be carried forward in 2022? Consider CREATE Law
ABC Corp., a DC, registered in 2010 made available the following financial information for TY2021: Balance Sheet: Asset - Php 500,000 Liability - Php 100,000 Stockholders' Equity - Php 400,000 Income Statement: Gross sales - Php 100,000,000 Cost of sales – Php 60,000,000 Operating Expenses - Php 30,000,000 How much is the excess MCIT which can be carried forward in 2022? Consider CREATE Law Group of answer choices Php 400,000 Php 2,100,000 Php 0 Php 800,000
E7.7 (LO 3, 4), AP Shruti Shrills is considering an expansion of one of its existing buildings to add more manufacturing space for its kid-friendly noisemakers. Several possible scenarios exist for future cash flows, as follows. 1. Construction costs of $500,000; steady sales and costs each year, netting to an annual operating cash inflow of $70,000; the expansion would have no salvage value at the end of its 10-year useful life (the building would be repurposed for a different product).2. Construction costs of $500,000; rising and then falling net cash flows each year for 10 years, as follows: $50,000 for the first 2 and last 2 years, $175,000 for years 3–5, and $100,000 for years 6–8.3. Construction costs of $700,000; no cash flows in year 1, $75,000 in years 2 and 3, $150,000 in year 4, $100,000 in years 5–8, and $50,000 in the last 2 years.Required 1. Calculate the simple payback period for all three scenarios.2. Assume that Shruti will only accept investments with a payback period…
4. A business sells 5,000 appliances at P8,000 each, which carry a one-year repair warranty. If minor repairs were to be required to appliances sold in 2022, the repair cost would be P600 each. If major repairs were needed on all goods sold, the cost would be P1,500 each. It is estimated that 40% of goods sold in 2022 will have no defects, 45% will have minor defects, and 15% will have major defects. What amount of provision on product warranty should the company recognize for 2022?
On January 1, 2017, Sheena Company borrowed 2,800,000 at an interest rate of 12% specifically for the construction of a new building.The actual interest cost on this specific borrowing was 336,000 but interest of 14,000 was earned from the temporary investment of the borrowing proceeds.Sheena company also had the following other loans in 2017 for general purposes but the proceeds were used in part for the construction of the building.Principal Interest10% bank loan 4,200,000 420,00012% long term loan 7,000,000 840,000The construction began on January 1, 2017 and was completed on December 31, 2017. The expenditures on the construction were 2,800,000 on Jan. 1, 1,400,000 on March 31 and 4,200,000 on Sept.30.Required: Compute the cost of the new building.
On December 31, 2015 the Neptune Corporation acquired acustom-made plant asset by issuing a promissory note with a face value of $ 1,200,000, a due date of December 31, 2025 and a stated (coupon) rate of interest of 4%. Interest is compounded annually and is payable at the end on each year. The fair value of the customized asset is not readily determinable and the note receivable is not publicly traded. Given the company's incremental borrowing rate and current market conditions, the imputed rate of interest for the note is estimated as 7%. Determine the present value of the note and prepare the journal entry to record the transaction for Neptune Corporation.
On December 31, 2018, ABC Corp. acquired Garlic Corp.’s P1,000,000 notes for P927,880. The market interest rate at that time was 12%. The stated interest rate was 10%, payable annually. THe notes mature in five years and classifies as financial asset at amortized cost. At December 31, 2020, the note is considered credit-impaired. Management determined that it was probable that the issuer would pay back only P600,000 of the principal at maturity. At December 31,2021, because of the improvement in the credit rating of Garlic Corp., Sinait Corp. reassessed the collectibility of the note and now expects to collect P900,000 from Garlic Corp, at maturity date. The required loss allowance at December 31,2020 is Interest income to be recognized in 2021 profit or loss The impairment gain to be recognized in 2021 profit or loss is
On October 1, 2015, Bea company entered into a, P10,400,000 purchase commitment for a supply of a special product on Mar. 31, 2016. On December 31, 2015, the market value of this material had fallen to P10,000,000. On Mar. 31, 2016, the market value of the purchase commitment is P10,500,000. What is the gain/(loss) on purchase commitment that should be recognized on Mar. 31, 2016?
Kwell Co. owes Kuto Bank P4,000,000 plus accrued interest of P360,000. The unamortized discounton the loan is P80,000. The debt is a 10-year, 12% loan. During 20x1, Kwell’s business deteriorateddue to loss of demand for its services. On December 31, 20x1, Kuto Bank agrees to accept oldequipment and cancel the entire debt. The equipment has a cost of P12,000,000, accumulateddepreciation of P8,800,000 and fair value of P3,600,000. How much is the gain (loss) on theextinguishment of the debt?